Special Coverage Insurance
Definition: An insurance policy expressly designed to offer a guarantee of protection in the event of specific circumstances .
Your business will require its own set of special insurance coverages for the risks inherent in your industry. Sometimes these can be added as endorsements to your policy, or you can buy them separately. Here are a few of the different types of specialty coverage you may need:
Care, Custody and Control
This is a must for businesses in service industries, particularly those with customer goods in their control anytime during the business transaction. Should an accident happen, the insurance company would reimburse you and your customer. This is especially useful to businesses that provide services such as framing pictures, furniture repair, bicycle assembly, dry cleaning and so on.
Basically, if you have a customer's goods in your control at any time during the business transaction, you're liable for the full value should an accident happen. You're held liable even for the most insignificant handling of the customer's property--holding and losing athletic shoes while your customer is roller skating is considered an accident.
This clause should be inserted into a standard insurance property or fire insurance policy. For an extra premium, you can insure the extra expenses of obtaining temporary quarters, relocation and incidental expenses.
This specialized insurance reimburses the business owner for future profits lost and fixed charges as a result of damages due to perils specifically accounted for in the policy. Weather damage is the most common cause. Other causes (e.g., a labor strike or material shortage) are not covered. The inclusions (e.g., tornado, hurricane) and exclusions (e.g., mudslide or tidal wave), differ, depending on your geographic location.
Predicting a company's profitability at a particular point in the future can be tricky. If the company was operating at a loss, then only the fixed expenses that it incurred may be reimbursed. However, if your company is operating at a profit, then good records (which underscores the importance of keeping duplicate records at another site) will support your case. If all the records have been destroyed in a fire, the previous year's tax records can help.
Business-interruption coverage is particularly crucial for restaurants, as they risk complete loss of income in the event of fire while still being obligated to make rental and loan payments.
There are even more specialized provisions with business-interruption insurance. Under the terms of an extended period of indemnity, the period of loss is defined as the period necessary to return to normal business operation. Otherwise, the payments are only made until the business can physically reopen (even if in a makeshift pattern).
Peak season endorsements, which are even more specialized, cover those service industries that make all their money during a particular season. If your company is located in a snow belt, a specialized form of business-interruption insurance can provide funds for a temporary source of heat until a new boiler arrives. Depending on the provisions you insert, the coverage may also take care of the costs of the new machine.
Unlike business-interruption insurance, which covers future profits, profit insurance covers the loss of goods already manufactured but destroyed before they could be sold. This specialized coverage is aimed at manufacturers.
If your business extends credit to another party, person, partnership, or corporation, you could encounter losses stemming from:
- Closure of a financial institution
- Death or physical disability
- Destruction of accounting records
- Political instability in a foreign country
The two major classifications for credit insurance are:
1. General coverage, which applies to those losses incurred during the one-year policy caused from sales made during the year prior to the starting date.
2. Forward coverage, which covers the insured for losses resulting from accounts that were created by sales made during the policy term.
General policies account for the lion's share of the credit policies in force. They cover all debtors falling into given classes of credit ratings on a blanket basis. The policy specifies dollar limits on debtors according to classifications set by Dun & Bradstreet credit ratings. Various levels of blanket coverage can be assigned depending on the size of the company. Automatic coverage on unrated accounts can also be provided.
Money and Securities Insurance
You may need additional insurance to cover those peak cash holding periods during the business day such as closing, after lunch, or payday. Check to see if your policy covers money in transit, money or securities on the premises during business hours and after hours, and money at home (when you're just too tired to go to the bank).
Businesses have the option of purchasing a comprehensive policy insuring breakage of plate glass, neon signs, and showcases from any source except fire or nuclear reaction. This includes weather, riots, vehicles, or sonic boom. Determine whether this coverage includes damage to stock by broken glass. Some policies include the costs of replacing lettering and other ornamentation.
Electronic equipment can be insured for fire, theft, malicious damage, accidental damage, mechanical breakdown, or electrical breakdown. A separate electronic data-processing (EDP) policy can cover hardware as well as software. Should fire occur in the computer room, the standard property insurance policy might pay you the price of replacing a blank roll of computer tape-an EDP policy could compensate you for the cost of reconstructing the data. These items and coverage are above and beyond the normal scope of business property insurance unless you have a comprehensive policy.
A power interruption endorsement is available on a machinery contract to provide coverage for losses from interruption of electricity, gas, heat, or other energy from public utilities. This is critical for those businesses in the perishable food industry or specialized sectors such as an ice warehouse.
Rain insurance is designed to cover losses at a certain percentage, for example 60 percent of the gross revenues on the last day not affected by rainfall. Swap meets, carnivals, auctions, and sporting events would consider this coverage.
In the same vein, this insurance is needed by businesses such as bakeries, dairies, and greenhouses that require the absolute maintenance of a certain temperature to prevent loss of valuable inventory.
Transportation insurance indemnifies your materials in transit. Common carriers like United Parcel Service are liable for most shipping damages to your goods. They are not liable for unforeseeable "acts of God" such as floods or lightening.
Land shipments most frequently use an inland transit policy. This would include a train derailment but exclude a labor strike or riot. Also excluded are breakage and leakage, however, the common carrier is generally liable for these damages.
Truck shipments can be covered by a blanket motor-cargo policy. Federal interstate trucking laws require minimum coverage that may not offer you full protection.
Fidelity bonds protect the firm from losses incurred by employee thefts. It is often difficult to establish losses, and only established losses are reimbursed. These bonds have been used to cover cash losses rather than merchandise losses, even though it's well known that losses from stolen merchandise far exceed those from cash losses. If applicable to your business, fidelity bonds should be used more widely to cover losses of both cash and merchandise.
A surety bond protects your company against losses incurred as a result of the failure of others to perform on schedule. If you're familiar with the construction industry, you know the importance of this insurance contract. Surety bonds, otherwise known as performance bonds, guarantee that a person or corporation will perform the service agreed on. The bond guarantees that you have the financial capacity to perform your duties, and it also backs your credit. Because your work is guaranteed, you're able to compete and bid on jobs with firms that are considerably larger than yours. Keep in mind that surety bonds may require extensive credit information and collateral.
Title insurance is available for a nominal fee and should always be requested for real estate purchases. In cases in which the title is not conveyed, even though the purchasers thought they had such a title, they are reimbursed.
Different than flood insurance, water damage insurance covers risks from leaking pipes, sprinkler system, backed-up toilets, bursting water tanks, and a leaking roof.
FAIR Plan Program
The Fair Access to Insurance Requirements (FAIR) Plan was established by the Federal Housing and Urban Development Act as riot insurance in the 1960s. You cannot be refused insurance even if your company is located in a crime-prone, high-violence area. The FAIR Plan provides coverage for looting, fire, vandalism, building, glass, and inventory if damage occurs during a group demonstration.
Other Specialized Packages
Specialized packages include an "errors and omissions rider clause" for owners and managers who are in the business of giving professional advice. A director and officer's liability policy is available if you serve on the board of directors of a corporation. A garage owner's policy covers any damage to vehicles in your care if you are customizing or repairing automobiles. There is also "special liquor legal liability" insurance for claims that stem from auto accidents caused by patrons who drink too much at a restaurant or tavern. Companies that use or produce chemicals, drugs, or industrial pollutants are wise to carry specific endorsements for these hazards. If you or your employees work or travel overseas, a special worldwide liability policy is available. This may or may not include kidnap and extortion coverage.